As a director or officer of a corporation carrying on business in Ontario, you might not know that you could be liable to a fine in the order of several tens of thousands of dollars and/or imprisonment if the corporation is found guilty of an offence under the Environmental Protection Act (epa). In the past few years, the public and all levels of government have become increasingly aware of, and interested in, the protection of the environment. This means governmental departments concerned with environmental protection have been increasing dramatically in size and that their personnel have been “flexing their muscles.” New laws are being passed (such as the 1986 amendment to the epa referred to below) and existing laws are being enforced more rigidly. To the corporations and their directors and officers, this has meant that an environmental inspector may come nosing around, and charges may be laid if infractions of the law are deemed to have occurred. These charges may well be not only against the corporation carrying on the business but also against some or all of its directors and officers. No longer can a director or officer hide behind the fact that he or she did not know what was going on or was not aware that the instructions relating to the implementation of a plan to protect the environment from adverse effects resulting from the corporation’s business were not being followed.
Looking at a development in Ontario, section 147a (1) of the epa states that: “Every director and officer of a corporation that engages in an activity that may result in the deposit, addition, emission or discharge of a contaminant into the natural environment contrary to this Act or the regulations has a duty to take all reasonable care to prevent the corporation from causing or permitting such unlawful discharge, addition, emission or discharge.” (emphasis added). Under subsection 3, the director or officer is liable to conviction whether or not the corporation has been prosecuted or convicted.
Simply put, this means directors and officers are going to have to take an active concern in what their corporation is doing and make an effort to ascertain that instructions are being followed. This does not mean that suddenly all directors are now required to actively “run the business.” It does mean, however, that they, as a group and individually, are now expected to take reasonable steps to see that their corporation has a plan to carry on its operations so as to protect the environment and to take reasonable steps to see that that plan is implemented. It must be noted that this section extends to major corporations and privately-owned corporations and to employee-officers, employee-directors and “outside” directors without any class distinctions. How many of you reading this are “nominee” directors of operating subsidiaries or are directors of “convenience” (usually to fulfil Canadian resident requirements under corporate legislation)?
It must also be noted that the section refers to “an activity that may * * ” result in an infraction of the act. This is, obviously, very broad wording. Think about it in connection with your business. There are some businesses, particularly in the natural resource industry, that carry on activities that are obviously “environmentally sensitive;” but, if you think about it, there are very few industrial operations that are carried on that might not have an accident which would, or could, have an adverse effect upon the environment.
Finally, the section clearly imposes an individual duty on each director and officer. In other words, it is no defence to a director to say that he or she thought that the board or specific employees were attending to the problem. It may not even be a defence that the board approved an environmental plan and instructed the responsible officers of the corporation to carry it out. “Paper policies” are not sufficient and each director has a duty to ascertain, on a reasonable basis, that the policies are bein g implemented. If the director can establish, to the satisfaction of the court, that he or she acted reasonably (or in legal terms, “with due diligence”) in the circumstances, then he or she will have a defence to a charge under the section.
Faced with all this, what is a director to do? There are several logical places to start:
* Learn about the various operations in which your corporation is involved and about the potential environmental problems which may arise.
* Discuss the operations with senior operating officers and other directors and put in diary form what you have done (sometime in the future you may have to satisfy a judge that you did your duty).
* At the board level, have a well- minuted meeting to consider the corporation’s operations, possible danger areas, a plan to meet these recognized dangers and to deal with them should they happen, and a procedure to implement and police this plan. It would be best if these considerations were carried on with the senior operating officers present and active.
* Document the plan and procedures and have these approved by the board, after they have been commented upon by the operating staff.
* Make sure that at each board meeting there is a report on environmental matters, including major problems that may have occurred and steps taken to meet them and avoid reoccurrence; progress in implementing the environmental plan and procedures (a standard format for this status report should probably be established); and comments upon the existing plan and procedures for their improvement. This report should be actively discussed and not just tabled as another management report.
* If a director is associated directly or indirectly with the corporation’s operations, he or she should take some reasonable steps to ascertain that the directions of the board are being implemented.
* In an environmentally sensitive industry, the directors would be well advised to authorize the establishment of an employee training program so that employees that may be involved in a problem are aware of the potential problem areas and know how to deal with them if they arise. Such a program should also clearly instruct each employee on the legal duties that arise if a problem occcurs and a procedure that should be followed (in this regard, remember that there is a duty under the epa to react immediately to correct an infraction under the act, so procedures cannot be to cumbersome or etched in stone).
* Consider establishing a dialogue with the appropriate governmental officials in order to establish that your policies are in keeping with what is expected and to an established line of communication if a problem should occur.
There are many things that can be done to protect the officers and directors; and a rough rule can be: the more the better. In large public corporations it will probably not be very difficult to interest the directors in taking action, but in smaller or tightly controlled corporations there will be difficulties if only for the reason that in such corporations the directors and board are often not “active.” The fact that a subsidiary’s business is run by the parent will not protect an officer or director under this section of the epa. It may even be a question as to whether a director of a corporation that has a “unanimous shareholders’ agreement,” whereby all powers of the board are assigned to the shareholder, can avoid liability under the section. It is to be hoped that, in most instances, such a director can do so, but what about a situation where such a director clearly identifies a potential problem; can he or she just sit back and do nothing or is there a “reasonable” duty on that director to at least bring the problem to the attention of the shareholder? It will be up to the courts to answer such questions, but in the meantime it will be better to be safe than sorry.
In conclusion, each director of a corporation is now under an obligation to think, to act, and to become involved in the corporation of which he or she is a director. Karl J. C. Harries is a graduate mining engineer and a partner with the Toronto law firm of Fasken & Calvin. The information in this article is summary and general in nature and is not intended to be taken or acted upon as legal advice. — 30 —
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